NS&I Green Savings Bonds, announced by Rishi Sunak in the 2021 Spring Budget, are now available for sale. The Bonds can be purchased and managed online at nsandi.com and it’s offering a 0.65 percent gross/AER fixed-rate over a three-year term.
Key features and details
NS&I explained: “The Green Savings Bonds will be on sale for a minimum period of three months. The minimum investment is £100 with a maximum limit of £100,000 per person and investors need to be aged 16 or over to purchase the new Bonds from NS&I.
“The full amount deposited will be held for three years and cannot be withdrawn during this time. Green Savings Bonds will help finance the Government’s green spending projects designed to tackle climate change and help make the UK greener and more sustainable. These projects will include making transport greener, using renewable energy over fossil fuels, preventing pollution, using energy more efficiently, protecting natural resources and adapting to a changing climate.”
Additionally, customers must have a UK bank account capable of receiving BACS payments. The fixed rate is guaranteed for the whole term, with Interest being earned daily and added once a year on the investment’s anniversary, and paid on maturity.
Interest is earned without deducting any tax at source. Interest is taxable at maturity and will count towards the customer’s Personal Savings Allowance and needs to be declared by the individual. NS&I noted customers who are concerned about how this might affect them should consider either contacting HMRC or seeking professional advice.
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Mr Sunak welcomed the launch: “Our world-first Green Savings Bonds give savers across the UK the chance to back the Government’s green projects and put their money to work in the fight against climate change.
“The UK is already a world leader in green finance and these innovative new savings bonds will deliver both financial returns and environmental benefits, in a transparent and secure way.”
Additionally, Ian Ackerley, NS&I’s Chief Executive, said: “We are proud to be offering Green Savings Bonds on behalf of the Government. Green Savings Bonds will offer savers the chance to contribute towards the UK’s green agenda and support six key areas to help make our environment greener, cleaner and more sustainable. As well as helping the environment, savers will see a fixed return on their investment and will also benefit from NS&I’s 100 percent security on all capital invested.
“Green Savings Bonds will be on sale for at least three months, giving savers ample opportunity to invest and the Bonds will be available to purchase and manage online.”
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An example to the world
The Green Savings Bond launch has been welcomed by a number of environmentally focused organisations.
Sean Kidney, CEO of Climate Bonds Initiative, commented: “Every government has to green their budgets to meet climate targets. The UK’s landmark green savings bonds show just how that greening can and will be funded. It serves as an example to the world.”
Rhian-Mari Thomas, the CEO of the Green Finance Institute, also said: “Following the success of the UK’s first two Green Gilt issuances, it’s great to see the launch of the new Green Savings Bonds, which will allow savers to put their money to work for the benefit of the environment. This is another important step to channel investment towards building a green, prosperous and inclusive UK economy, and an opportunity for savers to get involved.”
However, other experts within the financial field were less impressed with what’s on offer.
Early enthusiasm for the bonds is likely to wither
While interest rates across the savings market are particularly low at the moment, 0.65 percent is still a comparatively poor offering.
Andrew Hagger, a Personal Finance Expert from Moneycomms.co.uk, broke down how the rate on offer will impact savers.
“We knew these bonds were on the cards but no announcement was made on the rate until now – and perhaps you can see why, 0.65 percent is way out of kilter with the market,” he said.
“Someone investing £20,000 at 0.65 percent will earn £130 per year in interest with NS&I compared with the best buy deal from J N Bank at 1.81 percent which pays £362 per annum – a difference of almost £700 over three years.
“I appreciate that the Government is looking to fund essential green projects, but at a time of raging inflation where consumers are being squeezed financially from all angles, I can’t see people rushing to hand their cash over to the Government at such a heavy discount.”
Similar sentiment was shared by Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, who said: “NS&I Green Bonds are unlikely to be picked by enormous numbers of savers at this rate, because with a return of just 0.65 percent , early enthusiasm for the bonds is likely to wither.
“It’s such a disappointment for savers who were hoping for a competitive rate that meant they could do the right thing for the planet and their pocket at the same time. Instead NS&I is relying on savers who are willing to pay a price for going green with their savings.
“If you came across an account offering 0.65 percent over three years in any other context, you wouldn’t give it a second glance. You can currently get 1.81 percent from Al Rayan over three years, and even 1.45 percent from the same bank over one year. You can get 0.65 percent on an easy access account (with limited withdrawals) from Coventry Building Society, so it’s easy to wonder why you’d bother tying your cash up for three years for the same return.
“To make matters worse, there’s also a reasonable chance that interest rates will rise over the next three years, so a year or so down the track, 0.65 percent is likely to look even less rewarding by comparison.”
Despite the drawbacks, Ms Coles noted that as it’s an NS&I product, it is 100 percent backed by the Treasury and given its green credentials, some savers will likely decide it’s worth paying the price for supporting environmental projects.
However, Ms Coles concluded by urging savers to fully understand what they’re getting involved with: “You need to understand that you are paying a real price, because lower rates in a time of higher inflation means you’re highly likely to lose some of the spending power of your money over the three-year term. You need to be clear you’ll be happy withdrawing it in three years’ time, unable to buy the same things your money would stretch to today.
“If you’re keen to save ethically, there are alternatives in this space. You could, for example, choose a Triodos Ethical Savings Bond, fixed for a year at 0.4 percent . The rate is lower than NS&I, but if rates rise over the next 12 months, you could switch somewhere more rewarding when this comes to an end.”